Mortgage Pricing Hits Wall. Loan Demand Declines
The Mortgage Bankers Association (MBA) todayrnreleased its Weekly Mortgage Applications Survey for the weekrnending February 25, 2011. </p
The MBA’s loan application survey covers overrn50% of all U.S. residential mortgage loan applications taken by mortgagernbankers, commercial banks, and thrifts. The data gives economists a snapshotrnview of consumer demand for mortgage loans. In a falling mortgage raternenvironment, a trend of increasing refinance applications implies consumers arernseeking out lower monthly payments. If consumers are able to reduce theirrnmonthly mortgage payment and increase disposable income through refinancing, itrncan be a positive for the economy as a whole (may boost consumer spending. Alsornallows debtors to pay down personal liabilities faster). A trend of decliningrnpurchase applications implies home buyer demand is shrinking.</p
Excerpts from the Release…</p
The Market Composite Index, a measure ofrnmortgage loan application volume, decreased 6.5 percent on a seasonallyrnadjusted basis from one week earlier. On an unadjusted basis, the Indexrndecreased 5.5 percent compared with the previous week.</p
The Refinance Index decreased 6.5 percentrnfrom the previous week. The four week moving average is down 2.7 percent.rnThe refinance share of mortgage activity decreased to 64.9 percent of totalrnapplications from 65.7 percent the previous week.</p
The seasonally adjusted Purchase Indexrndecreased 6.1 percent from one week earlier. The unadjusted Purchase Indexrndecreased 3.5 percent compared with the previous week and was 19.6 percent lowerrnthan the same week one year ago. Thernfour week moving average is down 2.5 percent.</p
The average contract interest raternfor 30-year fixed-rate mortgages decreased to 4.84 percent from 5.00 percent,rnwith points increasing to 1.30 from 0.96 (including the origination fee) for 80rnpercent loan-to-value (LTV) ratio loans. This is the third consecutive weeklyrndecrease for the 30-year contract rate. The effective rate also decreasedrnfrom last week. </p
The average contract interest raternfor 15-year fixed-rate mortgages decreased to 4.17 percent from 4.28 percent,rnwith points increasing to 1.07 from 0.80 (including the origination fee) for 80rnpercent LTV loans. The effective rate also decreased from last week.</p
NOTE: These results do not include an adjustment for thernPresidents’ Day holiday.
“A wall has been hit in loan pricing” says MND’s Managing Editor Adam Quinones. “Lenders have moved the Best Execution 30-year fixed note rate as low as they possibly can without drastically altering their pipeline hedging strategies. This is a factor of what production mortgage-backed security coupon is most liquid in the secondary mortgage market. On conventional loans, the 4.50 percent MBS coupon is the hedging vehicle of choice for lock desks. Home loans with note rates between 4.875 and 5.25% are generally used to fill 4.50 percent MBS coupon trades. Until MBS investors demonstrate sustainable demand for 4.00 percent 30-year fixed MBS coupons, lenders will not find it economically efficient to quote 4.75 percent note rates without expensive permanent buydown costs. From that perspective, if you are floating a conventional home loan interest rate, you should not be expecting further improvements to your actual rate in the short term. If the bond market recovery rally continues, closing costs will improve, but on the whole, it will take a sustained move higher in 4.00 percent MBS coupon prices for Best Execution to dip below 4.875 percent.”</p
READ MORE ABOUT MORTGAGE RATES AND BEST EXECUTION</p
This happened in January. HERE is a post explaining the ledge in loan pricing.
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